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New Cyprus Residents - make sure you know who will inherit your estate
from: by Michael YatesIn an earlier article we drew attention to the need to review assets and the manner in which they are held in order to escape liability to inheritance tax in the United Kingdom. The key lies in domicile, even more so after the British Governments decision to tax the most basic of estate planning arrangements. So what is domicile?
Domicile In Cyprus, as in the U.K. everyone is born with a domicile. This is generally the domicile of the father and is known as the domicile of origin. The domicile of origin is retained until by his actions a person demonstrates that he has broken his ties to his domicile of origin and established a domicile elsewhere - a domicile of choice. Moving to Cyprus and making it his permanent home with the intention of staying can be such an event.
So far as moveable assets are concerned - banking accounts, share portfolios and assets other than real estate, it is the law of domicile, which governs the ability to bequeath assets freely on death. Many legal systems, including Cyprus, restrict this freedom so that the greater part of an estate passes to the testators family. The part of the estate, which may be freely disposed of is called the disposable portion and this ranges from one-quarter where there is a spouse and child, to the whole estate where there is no spouse, no children or descendants of children and no father or mother.
Sounds complicated? Read on. A surviving spouse is entitled to a share in the statutory portion (the part of the estate which may not be freely disposed of by will) and in the undisposed portion, if any. The size of the share is determined according to whether there are children or descendants of children, or ancestors or descendants of ancestors. Some, e.g. the descendants of children, share the portion of their deceased parent, others, such as descendants of brothers and sisters, simply take equal shares. Anyone who has received a gift from the testator during his lifetime may have to bring it into account. Where there is no spouse and only very remote relatives, the beneficiary may turn out to be the Republic of Cyprus.
As mentioned above, the law of domicile covers only personal property. Real estate passes according to the law of the place where it is situated. The will may or may not be valid in that country. The heirs of a testator who died domiciled in Cyprus, leaving a banking account in the Isle of Man and real estate in three other different countries may have to cope with five legal systems, and pay three lots of estate tax, before they can enjoy their inheritance. They will remember him!
A possible solution
One answer to the problem is to avoid having to become involved with the succession laws. Assets placed in trust outside Cyprus will not be covered by the will and the terms of the trust can ensure that they eventually pass to the testators intended beneficiaries. The laws of most of the major offshore financial centres also exclude claims arising under the forced heir ship laws of foreign countries.
Finally
Cyprus law contains a concession for British citizens who may dispose of their property freely by will. It may be a simple way out, but does it undermine a claim to Cyprus domicile? It certainly wastes an opportunity to create a very attractive tax-planning vehicle for heirs in the U.K.
Chesterfield provide offshore trust consultancy, management and administrative services covering offshore company and trust formation and offshore partnerships and management for trading, investment holding, asset management and estate and tax planning. For more information on these services and buying a property in the UK visit http://www.chesterfield-offshore.com
Author Michael Yates is Chesterfields Marketing Manager. He has the responsibility for promoting Chesterfield offshore trust and company financial products and developing and maintaining relationships with clients and professional intermediaries. Based in the Isle of Man.
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